Telecom Italia to present standalone plan as KKR hovers

By Elvira Pollina

MILAN (Reuters) – Telecom Italia (TIM) will this week set out its alternative to a 10.8 billion euro ($12 billion) takeover by U.S. fund KKR and also publish bleak annual results that will underline the challenges that it faces.

Under pressure from stiff competition on its home turf, the debt-laden former phone monopoly, which in January appointed its fifth executive in six years, has warned on its 2021 earnings three times, most recently in December.

Analysts are forecasting an 11% annual fall in core profit after leases, with the decline having accelerated to more than 23% in the fourth quarter, according to a company-compiled consensus. Domestic revenues are forecast to fall 2.9% in 2021.

One-off impairments and writedowns are expected to darken the picture.

Changes to a tax scheme that provided a 5.9 billion euro boost to TIM’s 2020 earnings have significantly reduced their impact, with Milan-based broker Akros calculating TIM could suffer a 4 billion euro hit as a consequence.

The numbers, however grim, are unlikely to be the main event.

Much of the attention will instead focus on new CEO Pietro Labriola as he presents his standalone plan for TIM which has been in the shadow of the KKR approach since last November. His strategy for 2022-2024 is expected to centre around a split of TIM’s assets and operations.

The TIM board is due both to review the plan and sign off on the results on Wednesday.

A bumpy ride: Telecom Italia share performance vs Italy’s blue chip index:

NETWORK PLAN

Backed by TIM’s leading investors Vivendi and state lender CDP, Labriola is expected to propose splitting the company between a network and a services business to unlock value and pave the way for the creation of a unified network champion.

Sources familiar with the matter said Labriola is ultimately looking to breathe fresh life into efforts to merge Telecom Italia’s fixed access network with that of rival state backed fibre optic firm Open Fiber, a move advocated by CDP, which would ultimately win control of the venture.

Talks between TIM and CDP on the single network project, aimed at avoiding a costly duplication of investments to upgrade the country’s network infrastructure, could bring a preliminary agreement later this month, two sources said.

KKR already has an interest in TIM, having spent 1.8 billion euros last year for a 37.5% stake in the group’s secondary network, known as FiberCop.

Protecting its investment in the network business remains a priority.

“KKR’s offer is still there but as of now it is a way to have a bargaining power on TIM’s network assets,” a third source said.

“Rome does not rule out KKR could be part of a solution to win control of TIM’s network under a demerger plan”, a fourth source said.

A special committee within TIM is expected to give its verdict on the KKR approach by mid-March once investors and markets have had a chance to digest Labriola’s plan.

Vivendi has indicated it believes the price of 0.505 euros is too low as it does adequately value TIM. The shares traded below 0.38 euros on Tuesday. ($1 = 0.8949 euros)

(Additional reporting by Giuseppe Fonte in Rome; Editing by Keith Weir)